The Oedipal Complex Market Selloff

We tend agree with the old trader’s adage that “Retail investors open the market and institutional investors close it.” Domestic US Google search volumes for the term “stock market” typically peak between 9am and 10am every day. That’s when “Mom and Pop” investors check out market news and plan any trades they want to make. Those go in at the open or shortly thereafter. By the close at 4pm, searches for “stock market” are 10-15% lower. Institutional investors, who often need to trade at the close anyway, take the reins for that part of the day.

So can we blame Mom and Pop for the sell off today? The answer, as any good therapist will tell you, is “It depends… How did they make you feel?

Freudian jokes aside, here’s the data:

Americans have become more interested in the stock market since the start of 2018. Peak Google searches for the term over the last 12-months occurred just 2 weeks ago (January 14 – January 20) and were +25% higher than at any point last year.

Zoom in on the data over the last 7 days (chart below) and you can see how US investors have responded to recent market action.

Friday morning – the day of that sharp and still largely unexplained rise in US equities – retail investors Googled “Stock market” somewhat more than in the prior 2 days into the open. Our interpretation: they had seen enough of the rally to add even more to their positions or initiate a few new ones.

Friday afternoon they checked “Stock market” and saw their optimism rewarded with a strong rally and a new high.

Today, however, the volume of searches for “stock market” were almost double those for the prior 5 trading sessions, and they peaked at 10am (not 9am), so the market was already open and in full-on decline. Our interpretation: retail investors’ attention to this drop brought out the selling at the open.

Interest in “stock market” searches remained elevated throughout the day.

The upshot: US retail investors may be playing an underappreciated role in equity market volatility just now. If so, this could push volatility higher in coming weeks even if stock prices recover from today’s drop.